Every year, the IRS strongly advises taxpayers to file their taxes promptly. Many people heed this advice, filing early in the tax season. However, there are always those who procrastinate, waiting until the last minute to submit their returns. Whether they are avoiding an impending tax bill or simply struggle with time management, the IRS frowns upon last-minute submissions. But their concern isn’t primarily about the workload surge caused by the filing deadline.
Contrary to popular belief, the IRS isn’t primarily concerned about the increased workload during tax season. While delays in processing refunds can be frustrating, particularly for those expecting refunds, the responsibility lies with the procrastinator.
The main reason the IRS encourages early filing is to combat tax fraud, particularly a type known as tax refund fraud. This occurs when someone else fraudulently files a return in your name to claim your refund before you do. It may sound improbable, but it’s a prevalent issue that the IRS aims to prevent by promoting early filing.
Tax Refund Fraud
In 2015 alone, the IRS rejected or suspended 4.8 million returns due to suspected refund fraud, according to IRS reports. Recently, a Florida woman was convicted for filing over 100 fraudulent tax returns between 2012 and 2014, netting $128,000 in stolen funds.
To combat tax refund fraud, the IRS actively collaborates with state tax agencies and tax preparation firms like TurboTax and H&R Block to enhance security measures. While instances of fraud have decreased in recent years, it remains a significant concern. The rise in online data breaches has made it easier for opportunistic criminals to acquire personal information and attempt fraudulent tax filings.
Someone Stole my Refund!
If you suspect or know that someone has attempted to steal your tax refund, there are several steps to follow. The IRS has outlined suspicious signs indicating that someone may have filed taxes using your identity. These include:
- Receiving a letter from the IRS questioning a tax return you did not file.
- Being unable to e-file your tax return due to a duplicate Social Security number.
- Receiving an unexpected tax transcript by mail.
- Noticing an IRS notification about an online account created in your name without your authorization.
- Receiving an IRS notification that your existing online account has been accessed or disabled without your action.
- Getting an IRS notice about additional taxes owed, a refund offset, or collection actions for a year when you did not file a tax return.
- IRS records showing wages or income from an employer you did not work for.
Additionally, if you receive an email from a tax preparer you have never used regarding a new account, it’s advisable not to dismiss it as spam immediately. Contact the company directly to verify its legitimacy. Regularly checking your Social Security Administration earnings statement at least once or twice a year is also recommended. If you notice earnings that do not belong to you, it could indicate fraudulent activity targeting you.
Protect Yourself
If you haven’t been a victim of tax refund fraud, let’s work to keep it that way! There are proactive steps you can take to minimize the risk of falling prey to this scam.
First and foremost, file your tax return promptly. Submitting your legitimate return early makes it more difficult for a fraudulent return to be processed. In the worst-case scenario where both you and the scammer file returns, the IRS will request additional proof of identity. You will have this evidence, whereas the scammer will not likely be able to provide it and may abandon the attempt to avoid detection.
Regularly monitoring your credit report is also advisable to ensure no unfamiliar activities or accounts appear.
Additionally, the IRS is implementing a PIN system for added security. While not yet available everywhere, this six-digit PIN will be required to file your tax return, serving as an extra layer of protection alongside your social security number and other personal information. Residents of Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Illinois, Maryland, Michigan, Nevada, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, Texas, or Washington who filed a federal tax return in 2019 can already obtain an IRS PIN. For others, obtaining an IRS PIN as soon as it becomes available is advisable.
How to Fix It
If you find yourself reading this article after discovering your tax refund has been stolen, we understand how frustrating it can be. However, there are steps you can take to combat this situation.
First and foremost, never ignore any notices from the IRS or state tax authorities. Even if you receive mail with your name but an incorrect address, take it seriously and respond accordingly.
If your tax return is rejected because someone has already filed using your identity, promptly complete an Identity Theft Affidavit (Form 14039) and submit it to the IRS. Additionally, report the identity theft to the Federal Trade Commission through their online portal.
Request a copy of the fraudulent tax return filed in your name. Understanding the false information on it can help you dispute its validity with the IRS.
Consider filing a report with your local police department, even though they may not take action. Having a documented report can serve as evidence that you reported the crime if the IRS requests it. Keep a copy of this report and any related documentation to support your case of identity theft.
Finally, take proactive steps to protect your credit by placing a freeze on it and placing a fraud alert on your credit report. These measures can make it significantly more difficult for anyone with access to your information to misuse it, including attempting to claim your tax refund.